Merrill Lynch 'did deal on Martha'

MARTHA Stewart's lawyers have dropped a double bombshell that could embarrass the prosecutors and swing the sympathies of the jury and the public further in her favour.

Robert Morvillo, Stewart's attorney, revealed that papers handed to the defence before the trial show that a deal had been struck with Merrill Lynch in which it was agreed to go after Sam Waksal, founder and former head of ImClone, but not to pursue Stewart.

Stewart, who founded Martha Stewart Living Omnimedia is accused of obstructing an investigation into her sale of shares of ImClone Systems, allegedly on information supplied by Waksal.

Morvillo said Merrill agreed with prosecutors to 'serve them Sam Waksal's head on a silver platter, and to look the other way with regard to Martha Stewart'.

He also claimed the evidence handed over by the US government showed that Douglas Faneuil, the Merrill stockbroker testifying against Stewart, had been advised by his lawyer to lie to maintain the agreement about Waksal.

Peter Bacanovic, the former Merrill broker who handled Stewart's account, is also accused of obstructing the investigation.

Morvillo's claims, if true, could discredit the prosecution's chief witness. The prosecution starts making its case today.